TypesInvestments.ppt
- 1. Types of Investments By Shivangi Sinha College: IIM Jammu
- 2. Types of Investments • Stocks • Bonds • Mutual Funds • Real Estate • Savings/Certificates of Deposit • Collectibles
- 3. Stocks • An investment that represents ownership in a company or corporation.
- 4. How Well the Stock Market is Doing Overall
- 5. 3 Basic Indicators • Dow Jones Industrial Average (“DOW”) – Lists the 30 leading industrial blue chip stocks • Standard and Poor’s 500 Composite Index – Covers market activity for 500 stocks – More accurate than DOW because it evaluates a greater variety of stock • National Association of Security Dealers Automated Quotations (“NASDAQ”) – Monitors fast moving technology companies – Speculative stocks, show dramatic ups and downs
- 6. Ups and Downs • The term bull market means the market is doing well because investors are optimistic about the economy and are purchasing stocks • The term bear market means the market is doing poorly and investors are not purchasing stocks or selling stocks already owned
- 8. Brokers • A Broker is a person who is licensed to buy and sell stocks, provide investment advice, and collect a commission on each purchase or sale – Purchases stocks on an organized exchange (stock market) – Over ¾ of all stocks are bought and sold on an organized exchange
- 9. Organized Exchanges • Minimum requirements for a stock to ensure only reputable companies are used • Each exchange has a limited number of seats available which brokerage firms purchase to give them the legal right to buy and sell stocks on the exchange
- 10. New York Stock Exchange • New York Stock Exchange (NYSE) – Oldest and largest, began in 1792 – 1,366 seats available – 2,800 companies – Average stock price is $33.00 – Strict requirements
- 11. American Stock Exchange • American Stock Exchange – Began in 1849 – 2nd largest exchange – It’s requirements are not as strict as NYSE allowing younger, smaller companies to list – Average stock price is $24.00
- 12. Regional Stock Exchanges • Regional Stock Exchanges – Stocks are traded to investors living in a specific geographical area • Including Boston, Cincinnati, Philadelphia, Spokane
- 13. NASDAQ • National Association of Securities Dealers Automated Quotations – Stocks are traded in an over the counter electronic market – 4,000 small companies • Company requirements are not as strict – More volatile because companies are young and new – Average stock price is $11.00
- 14. Bonds • A security representing a loan of money from a lender to a borrower for a set time period, which pays a fixed rate of interest.
- 15. Mutual Funds • An investment that pools money from several investors to buy a particular type of investment, such as stocks.
- 16. Real Estate • An investor buys pieces of property, such as land or a building, in hopes of generating a profit.
- 17. Savings/Certificates of Deposits • A deposit that earns a fixed interest rate for a specified length of time. – The longer the time period the greater the rate of return. – There is a substantial penalty for early withdrawal.
- 18. Collectibles • Unique items that are relatively rare or highly valued. – Art work – Baseball trading cards – Coins – Automobiles – Antiques
- 19. Risk vs. Return • On average, stocks have a high rate of return – The increase or decrease in the original purchase price of an investment • Higher rate of return = greater risk – Uncertainty about the outcome of an investment • Stocks provide portfolio diversification – Money invested in a variety of investment tools
- 21. Short-term Investment Strategies • Buying on margin is where an investor borrows part of the money needed to invest in a stock from a brokerage firm. – There is a 50% margin requirement. – If you want to purchase $2,000 worth of stock you can borrow up to $1,000 to make the purchase.
- 22. Short-term Investment Strategies • Short selling is where an investor sells shares of stock that they don’t own with the intent to buy them back later at a lower price. – Let’s use rollerblades as an example.
- 23. • Your friend buys new rollerblades for $80. • You borrow them and sell them for $80. • The price at the stores has been lowered to $45. • You buy a new pair for $45 and give them to your friend. • You made $35!!!
- 24. Long-term Investment Strategies • Diversification is spreading your assets among different types of investments to reduce risk. – Don’t put all your eggs in one basket.
- 25. Long-term Investment Strategies • Dollar Cost Averaging is buying an equal amount of the same stock at equal intervals. – Invest $100 in e-bay every month. The price you pay for the stock averages out over time.
- 26. Dollar Cost Averaging Amount Invested Share Price ($) Shares Purchased $1,000.00 $20.00 50.00 Amount Invested Share Price ($) Shares Purchased $100.00 $20.00 5.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $19.50 $19.25 $19.75 $19.20 $18.90 $18.00 $18.60 $19.78 5.13 5.19 5.06 5.21 5.29 5.56 5.38 5.06 $1,000.00 $20.00 50.00 $19.39* 51.66 $100.00 $20.90 4.78 One-Time Investment Dollar-Cost Averaging $1,000.00 * Average Share Price
- 27. Long-term Investment Strategies • Buy and hold technique is where an investor buys stock and holds on to it for a number of years. – During that time you are paid dividends and the price of the stock may go up.
- 28. How Can Government Regulations Protect Investors? • Regulatory Pyramid – A network of safeguards that surrounds the securities industry - from individual brokerages all the way up to the U.S. Congress.
- 30. Sources of Investment Information • Prospectus – A formal written offer to sell securities that sets forth a plan for a proposed business enterprise. A prospectus should contain the facts that an investor needs to make an informed decision.
- 31. Sources of Investment Information • Annual report – A document detailing the business activity of a company over the previous year, and containing an income statement, cash flow statement, and balance sheet.
- 32. Sources of Investment Information • Financial publications – Wall Street Journal – Fortune – Kiplingers Personal Finance • Online information – http://finance.yahoo.com – http://moneycentral.msn.com
- 33. How Do You Buy and Sell Investments? • Full-service broker • Discount broker • Online broker • Investment advisors